For decades, California property owners have deducted the full amount of their property taxes from their state income taxes - a commonly taken deduction but not a legal one. Now the California Franchise Tax Board intends to enforce the law, which allows taxpayers to deduct only some of the property taxes. Forget compliance - the Legislature needs to change the law.

Chronicle Net Worth columnist Kathleen Pender first alerted readers in November that the Franchise Tax Board will no longer allow taxpayers to deduct property tax assessments added to pay for schools, sewers, lighting or services such as police or paramedics. Under a little-known and widely ignored law, only the basic tax is deductible.

The Franchise Tax Board "identified the real estate issue as a longtime noncompliance issue," according to a spokesman. Originally the plan was to enforce the law for the 2011 tax year, but now the board will take a year to educate taxpayers and enforce the law in 2012. The board estimates that enforcement will generate $20 million in additional tax revenue for the state in 2011 and $200 million per year beginning in 2012.

This means that on average about 15 percent of the bill will no longer be deductible, according to Franchise Tax Board estimates. That varies widely by property, depending on how many voter-approved assessments apply. Homeowners who have owned their home for a long time may pay as much or more in added assessments as their basic tax. Also, with home values dropping, assessors have reassessed homes and lowered the basic tax, but not parcel taxes or Mello-Roos assessments.

There is also disagreement as to what is deductible. The Franchise Tax Board claims it is all spelled out in the state Tax Code. State law, however, references federal law, which many interpret as saying all assessments are deductible, not just taxes that are a percentage of the home's assessed value (called an ad valorem tax). The state is awaiting an IRS opinion.

Meanwhile, counties are referring taxpayers to the state to figure out what is deductible. Losing these state deductions will raise taxpayers' federal tax bill as well.

A quick glance at a typical bill reveals an alphabet soup of acronyms: MR, GOB, CFD. To figure out which of these assessments are deductible, one needs to know what they are. It's not right to force taxpayers to hire an expert to prepare their taxes or defend themselves in an audit because the taxes are so complex.

Communities have resorted to these special assessments because Proposition 13 has distorted California's tax system. Losing deductibility will frustrate communities' ability to circumvent Prop. 13 restrictions to maintain public services and facilities. A key selling point for any school parcel tax or police service assessment was that the taxpayer could deduct the additional tax. What's the probability of convincing voters to pass those measures now?

Orange County Republican Assemblyman Jim Silva of Huntington Beach has introduced legislation to remedy this mess. His AB1552, as written, would require the Franchise Tax Board to allow a deduction for Mello-Roos assessments, but he plans to amend it this week to include all assessments, thus conforming state tax law to decades of taxpayer practice.

"The state, like a hungry wolf, is always looking for more revenue," Silva said. "To have the state come back and say taxpayers can no longer deduct these assessments is wrong."

About property tax deductions

The California Franchise Tax board offers general guidance at sfg.ly/rHNwOA.

There are also sample tax bills for most counties. These may not include specific benefit assessments for your property, however. For example, a school district parcel tax would only appear on bills of property within that school district. sfg.ly/ymInF8

State tax law points to federal tax taw. The applicable U.S. Revenue Code is at sfg.ly/AciSH8.